Ryan's Family Steak Houses, Inc.
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WE'RE COOKIN'
2001 Annual Report
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TABLE OF CONTENTS
1 Corporate Profile
2-3 Letter To Our Stockholders
4-5 Financial Highlights -- Store Locations
6-11 Management's Discussion and Analysis
12-23 Financials
24 Directors -- Officers
25 Corporate Information
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Ryan's Family Steak Houses, Inc. 2001 Annual Report
CORPORATE PROFILE
What's cookin'? At Ryan's Family Steak Houses, Inc. it's always something good.
Something good for busy families. Something good for Ryan's team members. And
something good for communities and shareholders.
With 313 company-owned and 23 franchised restaurants in 23 states, Ryan's serves
up a "Steaks, Buffet and Bakery" concept that has produced same-store sales
gains for 15 of the last 16 quarters. In 2001, stores converted to our new
Display Cooking format rang up first-year average sales gains of 15%. Relocated
stores boosted their sales by more than 60%. New units averaged $3.5 million in
sales, compared to the previous record of $3.1 million set in 2000.
Want to know more about the 2001 successes of the company whose common stock
trades on The Nasdaq Stock Market(R) under the symbol RYAN? Turn the page and
help yourself!
"Last year was definitely a banner year for Ryan's. We set new records for total
sales, net earnings and earnings per share. We expanded the Ryan's concept into
new areas, and our new stores achieved record sales levels. Our stock price
increased 118% in 2001, hitting a new all-time high of $23.22,as investors
appreciated our consistent sales and earnings growth in the past and looked
forward to continued growth in the future. In 2002 we will strive to take the
record successes of 2001 to new levels. We expect to enjoy continued sales gains
in 2002 as we expand our Display Cooking format and see the impact from Ryan's
Leadership 2004, a new leadership training program that will help keep Ryan's at
the top of its game. The cost outlook for 2002 is also favorable. We are very
excited about the many opportunities at Ryan's and believe that we can produce
great things for our customers, team members and shareholders."
- Charles D. Way
Chairman, President and
Chief Executive Officer
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TO OUR STOCKHOLDERS
In 2001, Ryan's was baking, stirring, frying and sizzling. Our ovens were on,
our grills were hot, and we were cookin' on all burners. Total sales, net
earnings and earnings per share all jumped to their highest levels in our
company's history. Notable 2001 corporate milestones included:
- Record sales of $745.2 million ($704.6 million in 2000)
- Record net earnings of $45 million ($42 million in 2000)
- Record earnings per share of $1.42 ($1.27 in 2000)
- Record new store average unit sales of $3.5 million
- Stock price increase of 118% to a new all-time high
Our success in 2001 was fueled by the increasing popularity of Display Cooking,
an innovative format that has put grilled steaks, sizzling stir-fry and
just-baked pizza front and center in 19% of our stores. We moved into a new
state and added stores in existing markets to take advantage of evolving
demographic trends. The number of stores in our Operating Partner program grew
to 180, well on the way to our goal of implementing it into two-thirds of our
restaurants. We rolled out our Leadership 2004 program to all top managers, and
our share repurchase program continued to increase share-holder value. In 2001,
we were particularly proud of our team members and loyal customers who organized
grass-roots relief efforts to help grieving Americans rebuild their lives after
September 11.
Throughout a record-setting year, Ryan's proved to be a place of warmth and
community pride, where people came together with family and friends and helped
themselves to delicious, high-quality food at family-friendly prices. Same-store
sales rose 2.3%, and sales records on both Mother's Day and Father's Day proved
that Ryan's continues to be the perfect place to celebrate the most important
people in your life.
Adding More Sizzle To Our Steak
When you see the big stone grill at our newest restaurants, you feel like you're
walking into a high-country lodge nestled in a stand of tall evergreens. Our
growing number of Display Cooking stores feature a more inviting foyer and
Express Service with streamlined ordering. Customers can take their plates right
up to the cook and get juicy steaks, chops, chicken or other sizzling entrees
hot off the grill, cooked just the way they like them. The grill area includes a
carving station, wok and pizza ovens to provide even more freshly cooked and
carved choices. And customers enjoy it all along with Ryan's traditional
MegaBar((R)) Buffet and Bakery for one price.
First-year sales increases at restaurants converted to Display Cooking were in
the 15% range in 2001. That number becomes even more impressive when you
consider that all new and converted stores are open six days per week, instead
of the typical seven. By the end of 2002, Ryan's expects to raise numbers of
restaurants with Display Cooking from 19% to 35%. The total is expected to
include 17 to 19 store openings, including five or six relocations, and 30 to 40
conversions of existing restaurants.
Blazing New Territory
In 2001, Ryan's moved into its 23rd state--Maryland. Chain-wide, we opened 11
new Display Cooking restaurants and completed five relocations during the year.
Relocations enable us to position ourselves in locations where high
concentrations of retail choices give customers more to see and do.
In the restaurant industry, sales in new stores tend to drop off significantly
after the initial "honeymoon" period. Display Cooking has helped Ryan's welcome
a new trend. In 2001, new stores retained over 92% of their sales in the
post-honeymoon period, our best retention in more than a decade.
Keeping Hot Stores Cookin'
Store manager retention in 2001 reached 75%, our best retention rate in 15
years. Ryan's Leadership 2004 program was rolled out to all top managers,
offering insightful leadership and training sessions with extensive follow-up
for participants. A company-wide salary increase in April 2001 for top-level
store managers and our record stock price contributed to our success in
retaining the industry's best and brightest managers. We also continued to be
committed to the kind of quality of life issues that are important to our
managers. As we move toward six-day operating schedules
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Ryan's Family Steak Houses, Inc. 2001 Annual Report
in additional stores, more managers are enjoying five-day workweeks.
Our highly successful Operating Partner program is now in its 5th year. To
become an Operating Partner, an individual manager invests $10,000 in Ryan's
stock and commits to staying at the same store for five years. The "ownership
attitude" of an Operating Partner is reflected in every measure of store
performance, resulting in higher bonus levels for Operating Partners. Customers
enjoy better service. Team members enjoy greater job satisfaction. And higher
profits please shareholders.
"Customers really love our new Display Cooking format. First-year sales gains
for converted stores are averaging 15%. At the end of 2001, we had 60 Display
Cooking stores. With new stores, relocations and conversions, we expect to have
114 Display Cooking stores by the end of 2002."
Heating Up Shareholder Value
In 2001, the share repurchase program we began in 1996 continued to have a very
positive effect. Lifetime share repurchases reached approximately 25.3 million
shares, at an average of $9.65 per share. The plan authorizes the repurchase of
30 million shares, giving more opportunities to increase shareholder value in
the future. In 2001, Ryan's stock price hit an all-time record. The Company's
closing stock price more than doubled from $9.56 to $20.80.
Sharing Warmth With Relief Efforts
2001 was truly the best of times and the worst of times. But even in the worst
of times, Ryan's communities were at their best.
Following the September 11 terrorist attacks, team members and customers of
Ryan's joined their hands and their hearts in a spontaneous grass-roots effort
to raise money for relief efforts. Nearly $15,000 was raised from Ryan's team
members in the corporate office, with another $45,000 donated from a dozen
individual stores. From helping to raise $30,000 in one-day in Texas to making
patriotic ribbons and posting prayers, our communities showed their immense
capability for caring, and our people made us proud.
As we look further into 2002, we believe that same-store sales at Ryan's Family
Steak Houses will be driven by our Display Cooking program and could very well
maintain gains of 2-3%. Our Display Cooking conversion program should last for
another three to five years, resulting in significant revenue and profit
improvements in years to come. Food costs and interest rates should continue to
be favorable in 2002, and the impact of last year's salary increase for
top-level managers will cease to impact quarterly comparisons after the first
quarter. We look forward to continued improvements in store-level operations,
product innovation, store manager retention and a commitment to set ourselves
further apart in an industry that offers great promise for us all.
Thank you for your support of Ryan's now and in the future.
Sincerely,
/s/ Charles D. Way
Charles D. Way
Chairman, President and Chief Executive Officer
March 6, 2002
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PUTTING ON QUITE A DISPLAY
Ryan's four principal indicators reflected another record year in 2001. With our
new Display Cooking format going strong in 60 stores, sales, net earnings and
earnings per share all topped the charts. At year's end, there were 313
company-owned stores and 23 franchised locations.
[GRAPH]
Restaurant Sales
(in millions of dollars)
[GRAPH]
Earnings Per Share
(diluted; in cents)
[GRAPH]
Net Earnings
(in millions of dollars)
[GRAPH]
Restaurants Open at Year-End
[ ] Company-owned [ ] Franchised
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Ryan's Family Steak Houses, Inc. 2001 Annual Report
CARVING OUR WAY
Ryan's came to Maryland in 2001, and we continued to slice bigger pieces of
business in existing markets from Texas to Pennsylvania and Florida to Iowa.
[MAP]
336 TOTAL
(313 Company-owned; 23 Franchised)
Alabama - 19
Arkansas - 9
Florida - 26
(3 Company-Owned;
23 Franchised)
Georgia - 39
Illinois - 8
Indiana - 16
Iowa - 4
Kansas - 3
Kentucky - 13
Louisiana - 22
Maryland - 1
Michigan - 9
Mississippi - 11
Missouri - 17
North Carolina - 23
Ohio - 17
Oklahoma - 4
Pennsylvania - 2
South Carolina - 31
Tennessee - 24
Texas - 25
Virginia - 9
West Virginia - 4
"In 2001, Ryan's responded to new
opportunities and changing market demographics
by constructing 11 new units and
completing five relocations. We designed and
developed a new prototype store with an
attractive lodge look that includes log siding
and stone, providing the perfect showcase
for our new Display Cooking format."
- Morgan A. Graham
Vice President-Construction
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MANAGEMENT'S DISCUSSION AND ANALYSIS
of Financial Condition and Results of Operations
Shown for the years indicated are (i) items in the consolidated statements of
earnings as a percentage of restaurant sales, (ii) the number of restaurants
open at the end of each year, and (iii) the percentage change between years.
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Percentage of Restaurant Sales Percentage Change
-------------------------------- -----------------------
2001 2000 1999 2001/2000 2000/1999
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Restaurant sales 100.0% 100.0 100.0 5.8% 6.0
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Operating expenses
Food and beverage 36.4 37.4 38.2 2.7 3.8
Payroll and benefits 30.5 30.1 29.6 7.0 7.8
Depreciation 4.1 3.9 4.0 9.3 4.6
Other operating expenses 13.5 12.8 12.5 12.6 8.7
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 84.5 84.2 84.3 6.1 6.0
- ------------------------------------------------------------------------------------------------------------------------------
Operating profit 15.5 15.8 15.7 4.1 6.2
- ------------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 5.0 4.9 5.0 7.8 5.0
Interest expense 1.6 2.0 1.2 (16.0) 74.1
Revenues from franchised restaurants (0.2) (0.2) (0.2) 9.4 0.3
Other income, net (0.3) (0.2) (0.3) 17.0 29.3
- ------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 9.4 9.3 10.0 6.9 (0.8)
Income taxes 3.4 3.3 3.7 6.3 (3.6)
- ------------------------------------------------------------------------------------------------------------------------------
Net earnings 6.0% 6.0 6.3 7.3% 0.9
==============================================================================================================================
Restaurants Open at End of Year Percentage Change
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Company-owned 313 301 289 4.0% 4.2
Franchised 23 23 23 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total 336 324 312 3.7% 3.8
==============================================================================================================================
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Ryan's Family Steak Houses, Inc. 2001 Annual Report
"Many factors have contributed to our
high manager retention rate. Last year
we implemented a substantial base salary
increase for our top managers, improved
work schedules for all unit managers, and
provided significant leadership training. We
are now reaping the benefits of those initiatives.
In addition, our Operating Partner program
has extensively improved all aspects of
unit performance including unit management
retention. The leadership being displayed in
our Operating Partner units is exceptional, and
the expansion of this Program is exciting
for our short-term and long-term success."
- Randy Hart
Vice President-Human Resources
RESULTS OF OPERATIONS
2001 Compared to 2000
Total restaurant sales increased by $40.6 million, or 5.8%,to $745.2 million in
2001 from $704.6 million in 2000. Sales from restaurants opened in 2001 and 2000
accounted for approximately $40.9 million of the increase. All new restaurants
in 2001 were opened with Ryan's Display Cooking format (see "Liquidity and
Capital Resources"), achieving record first-year annualized sales volumes that
averaged $3.5 million per restaurant. The higher 2001 sales were further
impacted by a 2.3% increase in same-store sales. In computing same-store sales,
the Company averages weekly sales for those units operating for at least 18
months. The sales gains in 2001 from new restaurant sales and same-store sales
were partially offset by the loss of an additional week in 2000. In accordance
with the Company's accounting policies, the 2001 reporting period consisted of
52 weeks compared to a 53-week period in 2000. Sales during the additional, or
53rd, week in 2000 amounted to approximately $12.4 million.
During 2001, the Company opened 11 new and relocated five Ryan's restaurants.
Management defines a relocation as a restaurant opened within 12 months after
the closing of another restaurant in the same marketing area. A relocation
generally results in an opening and a closing in the same year. However, one
restaurant that was closed during 2000 for relocation reopened in early 2001.
Accordingly, at the end of 2001 and 2000,the Company owned and operated 313 and
301 restaurants, respectively.
Total operating expenses increased 6.1% to $629.6 million in 2001 from $593.6
million in 2000. Such costs, as a percentage of sales, were 84.5% for 2001 and
84.2% for 2000. Thus, the Company's operating margins at the restaurant level
were 15.5% and 15.8% of sales in 2001 and 2000, respectively.
Food and beverage costs decreased to 36.4% of sales in 2001 from 37.4% in 2000
resulting from menu price increases and lower beef, vegetable and soybean oil
prices, partially offset by higher pork and dairy costs. Payroll and benefits
increased to 30.5% of sales in 2001 from 30.1% of sales in 2000 due to higher
store management wages and team member medical insurance costs, partially offset
by lower hourly payroll costs resulting from 2001's higher average unit sales.
All other operating costs, including depreciation, increased to 17.6% of sales
in 2001 compared to 16.7% of sales in 2000 due to higher natural gas and store
closing costs. Store closing costs are generally incurred due to losses
resulting from the sale of restaurants closed in connection with the Company's
relocation program. In 2001, these costs included approximately $1.2 million of
additional depreciation charges associated with the closing of a leased property
in January 2002.
General and administrative expenses amounted to 5.0% of sales in 2001 and 4.9%
in 2000. Higher performance-based bonuses and franchise taxes in 2001 were
substantially offset by lower professional fees.
Interest expense amounted to $11.7 million in 2001 (1.6% of sales) compared to
$13.9 million in 2000 (2.0% of sales). The decrease resulted from a decrease in
the Company's effective average interest rate to 7.2% in 2001 from 8.2% in
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2000. Management expects a further decrease in the effective rate during 2002 as
the effective average rate at January 2, 2002 was 5.9%. Also, debt levels
decreased by $14.0 million in 2001 as fewer purchases of the Company's common
stock during 2001 made in connection with the Company's stock repurchase program
(see "Liquidity and Capital Resources") increased cash available for debt
repayment purposes.
Based upon the above changes to revenues and expenses, earnings before income
taxes increased to $70.4 million in 2001 from $65.8 million in 2000.
The effective income tax rate for 2001 decreased to 36.0% compared to 36.2% in
2000 due to higher federal employment-related tax credits.
Net earnings increased to $45.0 million in 2001 (6.0% of sales) from $42.0
million in 2000 (6.0% of sales). Diluted weighted-average shares decreased by
4.3% to 31,679,000 in 2001 compared to 33,095,000 in 2000 due to the Company's
stock repurchase program (see "Liquidity and Capital Resources"). Accordingly,
diluted earnings per share ("DEPS") increased 12% to $1.42 in 2001 from $1.27 in
2000.
As noted in the beginning of this section, the 2000 reporting period consists
of 53 weeks. In order to facilitate comparisons with 2001, management estimates
that the additional, or 53rd, week in 2000 added approximately $3.3 million to
store operating profits, $1.7 million to net earnings and five cents to DEPS.
2000 Compared to 1999
Total restaurant sales increased by $39.9 million, or 6.0%,to $704.6 million in
2000 from $664.7 million in 1999. Incremental sales from restaurants opened in
2000 and 1999 amounted to approximately $32.1 million, or 80% of the sales
increase. Also, as noted above, the 2000 reporting period consisted of 53 weeks
compared to a 52-week period in 1999. Sales during the additional week in 2000
amounted to approximately $12.4 million. These gains were partially offset by a
0.2% decrease in same-store sales.
During 2000, the Company opened 13 new and relocated four Ryan's restaurants.
Another restaurant was closed during 2000 for relocation and reopened in early
2001. Accordingly, at the end of 2000 and 1999, the Company owned and operated
301 and 289 restaurants, respectively.
Total operating expenses increased 6.0% to $593.6 million in 2000 from $560.2
million in 1999. Such costs, as a percentage of sales, were 84.2% for 2000 and
84.3% for 1999. Thus, the Company's operating margins at the restaurant level
were 15.8% and 15.7% of sales in 2000 and 1999, respectively.
Food and beverage costs decreased to 37.4% of sales in 2000 from 38.2% in 1999
resulting principally from menu price increases and lower seafood, poultry,
vegetable and soybean oil prices, partially offset by higher beef and pork
costs. Payroll and benefits increased to 30.1% of sales in 2000 from 29.6% of
sales in 1999 due principally to general wage pressures affecting both hourly
and store management wages. All other operating costs, including
depreciation, increased to 16.7% of sales in 2000 compared to 16.5% of sales in
1999 due to higher natural gas, credit card processing and store closing costs.
General and administrative expenses amounted to 4.9% of sales in 2000 and 5.0%
in 1999. Higher professional fees and legal costs were offset by lower
performance-based bonuses and media advertising costs. Media advertising
amounted to 0.2% of sales in 2000 and 0.3% in 1999.
Interest expense amounted to $13.9 million in 2000 (2.0% of sales) compared to
$8.0 million in 1999 (1.2% of sales). The increase resulted from higher debt
levels incurred during 2000 in connection with the Company's common stock
repurchase program (see "Liquidity and Capital Resources"). Interest expense was
also impacted by an increase in the Company's effective average interest rate to
8.2% in 2000 from 5.8% in 1999. In January 2000,the Company closed on two loan
transactions that refinanced all existing debt and increased its credit
availability (see "Liquidity and Capital Resources"). The Company's effective
average interest rate increased in 2000 due to the negotiated rates in the new
loan packages as well as from an overall higher interest rate environment.
Based upon the above changes to revenues and expenses, earnings before income
taxes decreased to $65.8 million in 2000 from $66.4 million in 1999.
The effective income tax rate for 2000 decreased to 36.2% compared to 37.3% in
1999 due to lower state income taxes.
Net earnings increased to $42.0 million in 2000 (6.0% of sales) from $41.6
million in 1999 (6.3% of sales). Diluted
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Ryan's Family Steak Houses, Inc. 2001 Annual Report
weighted-average shares decreased by 12.6% to 33,095,000 in 2000 compared to
37,874,000 in 1999 due to the Company's stock repurchase program (see "Liquidity
and Capital Resources"). Accordingly, DEPS increased 15% to $1.27 in 2000 from
$1.10 in 1999.
As noted in the beginning of this section, the 2000 reporting period consisted
of 53 weeks. In order to facilitate comparisons with 1999, management estimates
that the additional, or 53rd, week added approximately $3.3 million to store
operating profits, $1.7 million to net earnings and five cents to DEPS.
LIQUIDITY AND CAPITAL RESOURCES
The Company's restaurant sales are primarily derived from cash. Inventories are
purchased on credit and are rapidly converted to cash. Therefore, the Company
does not maintain significant receivables or inventories, and other working
capital requirements for operations are not significant.
At January 2, 2002, the Company's working capital amounted to a $24.0 million
deficit compared to a $31.6 million deficit at January 3, 2001. The Company does
not anticipate any adverse effect from the current working capital deficit due
to significant cash flow provided by operations, which amounted to $84.9 million
in 2001 and $79.5 million in 2000. Total capital expenditures decreased to $52.0
million in 2001 from $58.4 million in 2001 due principally to a decrease in land
acquisitions.
During 2002, the Company plans to build and open 17 to 19 new restaurants,
including five or six relocations. Similar to 2001, all new restaurants will
open with Ryan's Display Cooking format. This format was introduced in 2000 and
involves a glass-enclosed grill and cooking area that extends into the dining
room. A variety of meats are grilled daily and available to customers as part of
the buffet price. Customers go to the grill and can get hot, cooked-to-order
steak, chicken or other grilled items placed directly from the grill onto their
plate. Management also intends to remodel approximately 30 to 40 restaurants
with the Display Cooking format. Total 2002 capital expenditures are estimated
at $65 million. The Company is currently concentrating its efforts on
Company-owned Ryan's restaurants and is not actively pursuing any additional
franchised locations, either domestically or internationally.
The Company began a stock repurchase program in March 1996 and is currently
authorized to repurchase up to 30 million shares of the Company's common stock
through December 2002. Repurchases may be made from time to time on the open
market or in privately negotiated transactions in accordance with applicable
securities regulations, depending on market conditions, share price and other
factors. Through January 2, 2002, approximately 25.3 million shares, or 47% of
total shares available at the beginning of the repurchase program, had been
purchased at an average cost of $9.65 per share, amounting to $244.2 million in
total. From January 3, 2002 through March 6, 2002, another 1,200,700 shares were
purchased at an average cost of $22.10 per share, amounting to $26.5 million in
total. Management intends to actively proceed with the repurchase program
through 2002, subject to the continued availability of capital, the limitations
imposed by the Company's current credit agreements, applicable securities
regulations and the other factors described in "Forward-Looking Information".
The Company is prohibited from repurchasing stock after 2002 per the provisions
of the credit agreement related to a revolving credit facility (see next
paragraph).
Management estimates that cash generated from operations will exceed the
Company's 2002 capital expenditure requirements and plans to use this excess
cash for stock repurchases. Additional debt may be incurred in order to meet the
Company's repurchase objectives. Based on current target debt levels, a maximum
repurchase scenario would require approximately $25 million of additional
borrowings during 2002. At January 2, 2002, the Company's debt consisted of $75
million of 9.02% senior notes and a $200 million revolving credit facility of
which $103 million was outstanding. After allowances for letters of credit and
other items, there was approximately $88 million in funds available under the
revolving credit facility. The Company's ability to draw on these funds may be
limited by restrictions in the agreements governing both the senior notes and
the revolving credit facility. However, management believes that, based on
current plans, these restrictions will not impair the Company's operations
during 2002.
Management believes that its current capital structure is sufficient to meet its
2002 requirements. The Company has entered into interest rate hedging
transactions in the
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past, and although no such agreements are currently outstanding, management
intends to continue monitoring the interest rate environment and may enter into
such transactions in the future if deemed advantageous.
TAX CONTINGENCY
In September 2001 the Company received a proposed assessment from the South
Carolina Department of Revenue ("DOR") in connection with the DOR's audits of
the Company's state tax returns for the years 1994 through 1999. The Company
disagrees strongly with the DOR's findings, intends to vigorously contest the
assessment and has in fact filed refund claims for substantially all of the
years under audit. The DOR has not yet issued a final determination. Management
has engaged legal counsel to represent the Company before the DOR and beyond, if
necessary. At this time, it is not possible to estimate the ultimate financial
outcome to the Company. In the event of an unfavorable outcome, payment of the
assessment, including any interest and penalties, by the Company to the DOR
would not affect the Company's ability to meet its obligations or conduct its
business.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets." Under the new rules,
goodwill and other intangible assets with indefinite lives are no longer
amortized but are reviewed annually for impairment. Separable intangible assets
that are not deemed to have an indefinite life will continue to be amortized
over their useful lives. The Company will apply the new accounting rules
beginning January 3, 2002. The Company believes that the adoption of SFAS No.
141 and No. 142 will not have a material impact on its financial statements.
The FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" in
June 2001. SFAS No. 143 applies to legal obligations associated with the
retirement of certain tangible long-lived assets. This statement is effective
for fiscal years beginning after June 15, 2002. Accordingly, the Company will
adopt this statement on January 2, 2003. The Company believes the adoption of
SFAS 143 will not have a material impact on its financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001, and interim periods within those fiscal
years. The Company will adopt this statement on January 3, 2002. This statement
addresses financial accounting and reporting for the impairment or disposal of
long-lived assets and supersedes SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company
believes the adoption of SFAS No. 144 will not have a material impact on its
financial statements.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that have significant impact
on the Company's financial statements and involve difficult or subjective
estimates of future events by management. Management's estimates could differ
significantly from actual results, leading to possible significant adjustments
to future financial results.
Management believes that the Company's policy regarding asset impairment is the
Company's sole critical accounting policy. This policy, which is discussed in
Note 1 to the accompanying financial statements, generally applies to the
recoverability of a restaurant's carrying amount. For restaurants that will
continue to be operated, the carrying amount is compared to the undiscounted
future cash flows, including proceeds from future disposal, of the restaurant.
The estimate of future cash flows is based on management's review of historical
and current sales and cost trends of both the subject and similar restaurants.
The estimate of proceeds from future disposal is based on management's knowledge
of current and planned development near the restaurant site and on current
market transactions. If the carrying amount is not recoverable, or less than the
sum of the undiscounted future cash flows, the carrying value is reduced to the
restaurant's current fair value less costs to sell ("Current Market Proceeds").
The estimate of Current Market Proceeds is based on current market transactions
for similar restaurants. If the decision has been made to close a restaurant,
the carrying value of that restaurant is reduced to its Current Market Proceeds.
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Ryan's Family Steak Houses, Inc. 2001 Annual Report
"Of all the initiatives we've implemented, we feel Leadership 2004 will have
more impact than anything else. It is a self-discovery training program designed
to help our company's leaders increase their effectiveness. The program gives us
an opportunity to revolutionize how we think and how we do business. With such
wholesale change, every one of our stores will be able to deliver the true
Ryan's experience for every customer.
- -Al Squire
Director of Training
IMPACT OF INFLATION
The Company's operating costs that may be affected by inflation consist
principally of food, payroll and utility costs. A significant number of the
Company's restaurant team members are paid at the Federal minimum wage and
accordingly, legislated changes to the minimum wage affect the Company's payroll
costs. Although no minimum wage increases have been signed into law, legislation
proposing to increase the minimum wage by $1.50 to $6.65 per hour has recently
been introduced in the U.S. Congress. The Company is typically able to increase
menu prices to cover most of the payroll rate increases.
The Company considers its current price structure to be very competitive. This
factor, among others, is considered by the Company when passing cost increases
on to its customers. Sales prices were increased by approximately 3.9% in 2001
and 4.2% in 2000.
FORWARD-LOOKING INFORMATION
In accordance with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company cautions that the statements in this
annual report and elsewhere that are forward-looking involve risks and
uncertainties that may impact the Company's actual results of operations. All
statements other than statements of historical fact that address activities,
events or developments that the Company expects or anticipates will or may occur
in the future, including such things as deadlines for completing projects,
expected financial results and other such matters, are forward-looking
statements. The words "estimates", "plans", "anticipates", "expects", "intends",
"believes" and similar expressions are intended to identify forward-looking
statements. All forward-looking information reflects the Company's best
judgment based on current information. However, there can be no assurance that
other factors will not affect the accuracy of such information. While it is not
possible to identify all factors, the following could cause actual results to
differ materially from expectations: general economic conditions; competition;
developments affecting the public's perception of buffet-style restaurants;
real estate availability; food and labor supply costs; food and labor
availability; weather fluctuations; interest rate fluctuations; stock market
conditions; and other risks and factors described from time to time in the
Company's reports filed with the Securities and Exchange Commission, including
the Company's annual report on Form 10-K for the fiscal year ended January 2,
2002. The ability of the Company to open new restaurants depends upon a number
of factors, including its ability to find suitable locations and negotiate
acceptable land acquisition and construction contracts, its ability to attract
and retain sufficient numbers of restaurant managers and team members, and the
availability of reasonably priced capital. The extent of the Company's stock
repurchase program during 2002 and future years depends upon the financial
performance of the Company's restaurants, the investment required to open new
restaurants, share price, the availability of reasonably priced capital, the
financial covenants contained in the agreements governing both the senior notes
and the revolving credit facility, and the maximum debt and share repurchase
levels authorized by the Company's Board of Directors.
[PHOTO]
[PHOTO]
FINANCIAL REVIEW 2001
13 Five - Year Financial Summary
14 Consolidated Statements of Earnings
15 Consolidated Balance Sheets
16 Consolidated Statements of Cash Flows
17-23 Notes to Consolidated Financials Statements
23 Independence Auditor's Report
Page 13
Ryan's Family Steak House Annual Report
FIVE-YEAR FINANCIAL SUMMARY
(In thousands, except earnings per share)
==============================================================================
2001 2000(a) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS DATA
Restaurant sales $ 745,163 704,624 664,681 637,003 599,169
- ---------------------------------------------------------------------------------------------------------------------------------
Operating expenses
Food and beverage 271,020 263,799 254,052 248,903 237,066
Payroll and benefits 226,950 212,108 196,847 186,565 171,390
Depreciation 30,238 27,668 26,456 25,317 23,821
Other operating expenses 101,406 90,051 82,823 79,838 75,384
- ---------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 629,614 593,626 560,178 540,623 507,661
- ---------------------------------------------------------------------------------------------------------------------------------
Operating profit 115,549 110,998 104,503 96,380 91,508
- ---------------------------------------------------------------------------------------------------------------------------------
General and administrative expenses 37,582 34,855 33,191 29,670 27,301
Interest expense 11,687 13,905 7,986 6,802 5,867
Revenues from franchised restaurants (1,281) (1,171) (1,167) (1,143) (1,273)
Other income, net (2,824) (2,413) (1,866) (1,938) (1,489)
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 70,385 65,822 66,359 62,989 61,102
Income taxes 25,339 23,839 24,742 22,669 21,892
- ---------------------------------------------------------------------------------------------------------------------------------
Net earnings $ 45,046 41,983 41,617 40,320 39,210
=================================================================================================================================
Earnings per share
Basic $ 1.47 1.28 1.12 .95 .83
Diluted 1.42 1.27 1.10 .94 .82
=================================================================================================================================
Weighted-average shares
Basic 30,587 32,797 37,253 42,227 47,335
Diluted 31,679 33,095 37,874 42,881 47,761
=================================================================================================================================
Selected Other Consolidated Data
Working capital deficit $ (23,959) (31,632) (30,866) (111,666) (52,763)
Current ratio 0.5/1 0.3/1 0.3/1 0.1/1 0.2/1
Cash provided by operations $ 84,944 79,509 75,349 73,696 64,939
Property and equipment additions 51,982 58,369 53,198 43,682 47,456
Total assets 583,129 556,061 525,827 509,393 495,554
Long-term debt 178,000 192,000 172,375 81,374 93,000
Total current and long-term debt 178,000 192,000 172,375 165,400 121,300
Purchase of common stock 22,322 43,758 41,315 80,549 18,151
Shareholders' equity 316,754 282,429 283,393 280,372 317,061
Company-owned restaurants open at end of year 313 301 289 280 270
=================================================================================================================================
(a) Indicates a 35-week period
Page 14
CONSOLIDATED STATEMENTS OF EARNINGS
===========================================================
Year Ended
-----------------------------------------------------------
January 2, January 3, December 29,
(In thousands, except earnings per share) 2002 2001 1999
- --------------------------------------------------------------------------------------------------------------
Restaurant sales $ 745,163 704,624 664,681
- --------------------------------------------------------------------------------------------------------------
Operating expenses
Food and beverage 271,020 263,799 254,052
Payroll and benefits 226,950 212,108 196,847
Depreciation 30,238 27,668 26,456
Other operating expenses 101,406 90,051 82,823
- --------------------------------------------------------------------------------------------------------------
Total operating expenses 629,614 593,626 560,178
- --------------------------------------------------------------------------------------------------------------
Operating profit 115,549 110,998 104,503
- --------------------------------------------------------------------------------------------------------------
General and administrative expenses 37,582 34,855 33,191
Interest expense 11,687 13,905 7,986
Revenues from franchised restaurants (1,281) (1,171) (1,167)
Other income, net (2,824) (2,413) (1,866)
- --------------------------------------------------------------------------------------------------------------
Earnings before income taxes 70,385 65,822 66,359
Income taxes 25,339 23,839 24,742
- --------------------------------------------------------------------------------------------------------------
Net earnings $ 45,046 41,983 41,617
==============================================================================================================
Earnings per share
Basic $ 1.47 1.28 1.12
Diluted 1.42 1.27 1.10
==============================================================================================================
Weighted-average shares
Basic 30,587 32,797 37,253
Diluted 31,679 33,095 37,874
==============================================================================================================
See accompanying notes to consolidated financial statements.
Page 15
Ryan's Family Steak Houses, Inc. 2001 Annual Report
CONSOLIDATED BALANCE SHEETS
========================
January 2, January 3,
(In thousands) 2002 2001
- ----------------------------------------------------------------------------------------------
ASSETS
Current assets
Cash and cash equivalents $ 13,323 2,098
Receivables 4,806 3,631
Inventories 5,091 5,085
Deferred income taxes 5,048 4,806
Prepaid expenses 816 820
- ---------------------------------------------------------------------------------------------
Total current assets 29,084 16,440
- ---------------------------------------------------------------------------------------------
Property and equipment
Land and improvements 132,074 126,362
Buildings 379,254 358,415
Equipment 207,150 193,013
Construction in progress 38,145 37,054
- ---------------------------------------------------------------------------------------------
756,623 714,844
Less accumulated depreciation 209,514 182,379
- ---------------------------------------------------------------------------------------------
Net property and equipment 547,109 532,465
- ---------------------------------------------------------------------------------------------
Other assets 6,936 7,156
- ---------------------------------------------------------------------------------------------
Total assets $583,129 556,061
=============================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable 13,472 11,003
Income taxes payable 3,238 3,263
Accrued liabilities 36,333 33,806
- ---------------------------------------------------------------------------------------------
Total current liabilities 53,043 48,072
- ---------------------------------------------------------------------------------------------
Long-term debt 178,000 192,000
Deferred income taxes 31,419 30,628
Other long-term liabilities 3,913 2,932
- ---------------------------------------------------------------------------------------------
Total liabilities 266,375 273,632
- ---------------------------------------------------------------------------------------------
Shareholders' equity
Common stock of $1.00 par value; authorized 100,000,000 shares;
issued 30,544,000 in 2001 and 31,192,000 in 2000 30,544 31,192
Additional paid-in capital 5,203 89
Retained earnings 281,007 251,148
- ---------------------------------------------------------------------------------------------
Total shareholders' equity 316,754 282,429
- ---------------------------------------------------------------------------------------------
Commitments
- ---------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $583,129 556,061
=============================================================================================
See accompanying notes to consolidated financial statements
Page 16
CONSOLIDATED STATEMENTS OF CASH FLOWS
===========================================
Year Ended
--------------------------------------------
January 2, January 3, December 29,
(In thousands) 2002 2001 1999
- -----------------------------------------------------------------------------------------------------------
Cash flows from operating activities
Net earnings $ 45,046 41,983 41,617
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 31,956 29,403 28,299
Gain on sale of property and equipment (518) (132) (197)
Tax benefit related to stock option programs 3,195 89 569
Decrease (increase) in:
Receivables (1,175) (604) (352)
Inventories (6) (422) (336)
Other current assets 4 (320) 46
Other assets (59) (1,597) (704)
Increase (decrease) in:
Accounts payable 2,469 (888) 5,080
Income taxes payable (25) 266 (762)
Accrued liabilities 2,527 4,654 (291)
Deferred income taxes 549 5,429 2,084
Other long-term liabilities 981 1,648 296
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 84,944 79,509 75,349
- ---------------------------------------------------------------------------------------------------------
Cash flows from investing activities
Proceeds from sale of property and equipment 6,179 5,292 9,179
Capital expenditures (51,982) (58,369) (53,198)
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (45,803) (53,077) (44,019)
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities
Net proceeds from (repayment of) notes payable -- (91,000) 18,600
Repayment of long-term debt -- (81,375) (11,625)
Proceeds from issuance of senior notes -- 75,000 --
Net proceeds from (repayment of) revolving credit facility (14,000) 117,000 --
Debt issuance costs -- (1,565) --
Proceeds from stock options exercised 8,406 722 2,150
Purchase of common stock (22,322) (43,758) (41,315)
- ---------------------------------------------------------------------------------------------------------
Net cash used in financing activities (27,916) (24,976) (32,190)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 11,225 1,456 (860)
Cash and cash equivalents--beginning of period 2,098 642 1,502
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents--end of period $ 13,323 2,098 642
=========================================================================================================
Supplemental disclosure
Cash paid during the year for:
Interest, net of amount capitalized $ 11,783 11,125 8,647
Income taxes 21,786 18,681 22,851
============================================================================================================
See accompanying notes to consolidated financial statements.
PAGE 17
RYAN'S FAMILY STEAK HOUSES, INC. 2001 ANNUAL REPORT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Ryan's Family Steak Houses, Inc. operates a chain of 313 Company-owned and 23
franchised (as of January 2, 2002) restaurants located principally in the
southern and midwestern United States. The Company was organized in 1977, opened
its first restaurant in 1978 and completed its initial public offering in 1982.
CONSOLIDATION The consolidated financial statements include the financial
statements of Ryan's Family Steak Houses, Inc. and its wholly-owned
subsidiaries. All significant intercompany balances and transactions have been
eliminated in consolidation.
FISCAL YEAR The Company's fiscal year ends on the Wednesday nearest December 31,
resulting in years of either 52 or 53 weeks. The year ended January 2, 2002
comprises 52 weeks, and the years ended January 3, 2001 and December 29, 1999
comprise 53 and 52 weeks, respectively.
CASH AND CASH EQUIVALENTS Cash and cash equivalents include cash and short-term
investments with initial maturities of three months or less that are stated at
cost which approximates market value.
INVENTORIES Inventories consist of menu ingredients and restaurant supplies and
are stated at the lower of cost or market. Cost is determined using the
first-in, first-out method.
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
is calculated principally on the straight-line method over the following
estimated useful lives: buildings and land improvements -- 25 to 39 years and
equipment -- 3 to 10 years. Buildings and land improvements on leased property
are amortized straight-line over the shorter of the expected lease term or
estimated useful life of the asset.
The Company's long-lived assets, which consist principally of restaurant
properties, and certain identifiable intangibles are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If an asset is considered to be impaired, an
impairment loss is recognized equal to the amount by which the carrying amount
of the asset exceeds its fair value. Assets to be disposed of are reported at
the lower of carrying amount or fair value less costs to sell.
OTHER ASSETS Other assets consist principally of the cash surrender values of
officer life insurance policies, unamortized debt issuance costs, a long-term
prepayment of land rent and other long-term receivables.
DERIVATIVE FINANCIAL INSTRUMENTS The Company uses derivative financial
instruments to reduce its exposure to interest rate fluctuations. The Company
does not enter into financial instrument agreements for trading or speculative
purposes. In accordance with Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Certain Hedging
Activities" and SFAS No. 138, "Accounting for Derivative Instruments and Certain
Hedging Activities, an Amendment of SFAS No. 133", all derivative instruments,
including derivative instruments embedded in other contracts, are carried as
either assets or liabilities on the Company's balance sheet at fair value.
Changes in fair value are recognized either in earnings or equity, depending on
the nature of the underlying exposure being hedged and how effective the
derivatives are at off-setting price or rate movements in the underlying
exposure. There were no derivative financial instrument agreements outstanding
as of January 2, 2002 and January 3, 2001.
FRANCHISE REVENUES The Company grants franchises to operators who in turn pay
initial fees and royalties for each restaurant. The initial franchise fee is
recorded as income when each restaurant commences operations. Franchise
royalties, which are based on a percentage of monthly sales, are recognized as
income on the accrual basis. In the event that a franchisee experiences payment
difficulties or, in management's opinion, may be susceptible to such
difficulties, franchise royalties may be recognized as income on the cash basis.
INCOME TAXES Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK OPTIONS As allowed by SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company accounts for its stock option plans in accordance
with the provisions of Accounting Principles Board ("APB") Opinion No.
25,"Accounting for Stock Issued to Employees", and related interpretations. As
such, compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeds the exercise price. The additional
pro forma disclosure required by SFAS No. 123 can be found in Note 9.
EARNINGS PER SHARE Basic earnings per share ("EPS") excludes dilution and is
computed by dividing income available to common shareholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
includes common stock equivalents which arise from the hypothetical exercise of
outstanding stock options using the treasury stock method.
USE OF ESTIMATES The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
RECLASSIFICATIONS Certain prior year amounts in the accompanying consolidated
financial statements have been reclassified to conform to the 2001 presentation.
PAGE 18
NOTE 2. INCOME TAXES
Income tax expense for the years ended January 2, 2002, January 3, 2001, and
December 29, 1999 consists of:
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------
Current
U.S. Federal $ 22,452 16,901 20,568
State and local 2,338 1,509 2,090
- -------------------------------------------------------------------
Total current 24,790 18,410 22,658
- -------------------------------------------------------------------
Deferred
U.S. Federal 496 5,004 1,420
State and local 53 425 664
- -------------------------------------------------------------------
Total deferred 549 5,429 2,084
- -------------------------------------------------------------------
Total income taxes $ 25,339 23,839 24,742
===================================================================
Income taxes differ from the amounts computed by applying the U.S. Federal
statutory corporate rate of 35 percent to earnings before income taxes as
follows:
(In thousands) 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------
Tax at Federal statutory rate $ 24,635 23,038 23,226
Increase (decrease) in taxes due to:
State income taxes, net of Federal income tax benefit 1,554 1,257 1,790
Other (850) (456) (274)
- -------------------------------------------------------------------------------------------------------------
Total income taxes $ 25,339 23,839 24,742
=============================================================================================================
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at January 2, 2002 and
January 3, 2001 are presented in the following table:
(In thousands) 2001 2000
- ------------------------------------------------------------------------
Deferred tax assets
Self-insurance reserves $ 4,400 4,161
Deferred compensation 1,770 1,259
Other 647 643
- ------------------------------------------------------------------------
Total gross deferred tax assets 6,817 6,063
- ------------------------------------------------------------------------
Less valuation allowance -- --
- ------------------------------------------------------------------------
Net deferred tax assets 6,817 6,063
- ------------------------------------------------------------------------
Deferred tax liabilities
Building and equipment (33,188) (31,765)
Other -- (120)
- ------------------------------------------------------------------------
Total gross deferred tax liabilities (33,188) (31,885)
- ------------------------------------------------------------------------
Net deferred taxes $ (26,371) (25,822)
========================================================================
The Company did not establish a valuation allowance for deferred tax assets as
of January 2, 2002 or January 3, 2001. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment and, accordingly, believes it is more likely than not
that the results of future operations will generate sufficient taxable income to
realize the benefits of these deductible differences at January 2, 2002.
PAGE 19
RYAN'S FAMILY STEAK HOUSES, INC. 2001 ANNUAL REPORT
NOTE 3. LONG-TERM DEBT
Long-term debt at January 2, 2002 and January 3,2001 consists of the following:
(In thousands) 2001 2000
- --------------------------------------------------------------------------------------------------------------------------------
Revolving credit facility with banks due January 2005,with weighted average interest of 3.60%
at January 2, 2002; secured by the common stock of the Company's wholly-owned subsidiaries $ 103,000 117,000
Senior notes payable bearing interest at 9.02%; payable in annual installments of $18,750,000
commencing January 2005, final installment due January 2008; secured by the common stock
of the Company's wholly-owned subsidiaries 75,000 75,000
- --------------------------------------------------------------------------------------------------------------------------------
178,000 192,000
Less current installments -- --
- --------------------------------------------------------------------------------------------------------------------------------
Total long-term debt $ 178,000 192,000
================================================================================================================================
On January 28, 2000, the Company closed on two loan transactions that refinanced
all outstanding debt balances and added to the Company's credit availability.
The first transaction involved a $200 million revolving credit facility due in
2005, bearing interest at various floating interest rates plus a variable spread
that ranges from 0.875% to 1.625%. Interest is paid at least quarterly and is
generally based on the London Interbank Offered Rate. Unused fees ranging from
0.225% to 0.375% of the average unused portion of the facility are also paid
quarterly. The variable spread and the unused fee rate were 1.375% and 0.325%,
respectively, at January 2, 2002. Both percentages are based on the ratio of
funded debt to EBITDA and are subject to adjustment quarterly. The second
transaction involved the private placement of $75 million of senior notes due in
2008 with principal payments commencing in 2005. Interest accrues at a fixed
rate of 9.02% and is paid semiannually. Both loans are secured by the stock of
the Company's wholly-owned subsidiaries.
The revolving credit facility also includes a $20 million subfacility for
letters of credit of which approximately $8.4 million was outstanding at January
2, 2002. The Company uses letters of credit principally for self-insurance
purposes.
The loan agreements contain minimum net worth requirements and maximum leverage
ratios as well as restrictions on future stock repurchase, dividends, capital
expenditures, investments and sales of assets. As of January 2,2002, the Company
exceeded the most restrictive minimum net worth requirement in the agreements by
$55.6 million.
The aggregate amount of installments due on long-term debt for each of the five
years subsequent to January 2, 2002 are as follows: $0 in 2002; $0 in 2003; $0
in 2004; $121.8 million in 2005; and $18.8 million in 2006.
The fair value of all long-term debt, except for the 9.02% senior notes,
approximates its carrying amount as of January 2, 2002 and January 3, 2001 due
to the variable interest rate provisions of the debt instruments. Based on the
borrowing rates available to the Company for notes with similar terms and
average maturities, the fair value of the 9.02% senior notes was approximately
$79,700,000 at January 2, 2002.
NOTE 4. INTEREST COST
The Company capitalizes interest cost as a component of the cost of new
restaurant construction. A summary of interest cost incurred follows:
(In thousands) 2001 2000 1999
- --------------------------------------------------------------------------------
Interest cost capitalized $ 2,813 2,972 2,055
Interest cost charged to income 11,687 13,905 7,986
- --------------------------------------------------------------------------------
Total interest cost incurred $ 14,500 16,877 10,041
================================================================================
NOTE 5. LEASES
The Company leases 16 restaurant sites under noncancelable operating leases with
initial terms that expire over the next 1 to 10 years. The Company is also a
party to one noncancelable operating lease for a restaurant building and its
underlying land for an initial 20-year term. These leases contain renewal
options for periods ranging from 3 to 30 years and require the Company to pay
all executory costs such as property taxes, utilities and insurance. Rental
payments are based on contractual amounts as set forth in the lease agreements
and do not include any contingent rentals. The Company also leases dishwashing
equipment at certain restaurants under agreements with five-year terms that are
cancelable by the Company after the first 12 months. Total rental expense for
operating leases amounted to $2,133,000 in 2001, $1,629,000 in 2000, and
$1,277,000 in 1999. Future lease payments under the noncancelable operating
leases as of January 2, 2002, are:
(In thousands)
- ----------------------------------------------------
Year End
2002 $ 1,176
2003 1,001
2004 938
2005 921
2006 917
Later years, through 2011 4,722
- ----------------------------------------------------
Future lease payments $ 9,675
====================================================
PAGE 20
NOTE 6. ACCRUED LIABILITIES
Accrued Liabilities Consist of the Following:
(In thousands) 2001 2000
- ------------------------------------------------------------------
Self-insurance accruals $ 11,399 11,050
Accrued compensation 8,699 6,641
Accrued taxes (other than income) 7,817 7,793
Accrued interest 3,070 3,166
Outstanding gift certificates 2,363 2,052
Deferred product allowances 587 1,037
Other accrued expenses 2,398 2,067
- ------------------------------------------------------------------
Total accrued liabilities $ 36,333 33,806
==================================================================
NOTE 7. SHAREHOLDERS'EQUITY
The components of shareholders' equity are as follows:
$1 Par Value Additional Retained
(In thousands) Common Stock Paid-In Capital Earnings
- -------------------------------------------------------------------------------------------------------------
Balances at December 30, 1998 $ 39,158 1,274 239,940
- -------------------------------------------------------------------------------------------------------------
Net earnings -- -- 41,617
Issuance of common stock under Stock Option Plans 308 1,842 --
Tax benefit from exercise of nonqualified stock options -- 569 --
Purchases of common stock (3,611) (2,982) (34,722)
- -------------------------------------------------------------------------------------------------------------
Balances at December 29, 1999 35,855 703 246,835
- -------------------------------------------------------------------------------------------------------------
Net earnings -- -- 41,983
Issuance of common stock under Stock Option Plans 112 610 --
Tax benefit from exercise of nonqualified stock options -- 89 --
Purchases of common stock (4,775) (1,313) (37,670)
- -------------------------------------------------------------------------------------------------------------
Balances at January 3, 2001 31,192 89 251,148
- -------------------------------------------------------------------------------------------------------------
Net earnings -- -- 45,046
Issuance of common stock under Stock Option Plans 1,106 7,300 --
Tax benefit from exercise of nonqualified stock options -- 3,195 --
Purchases of common stock (1,754) (5,381) (15,187)
- -------------------------------------------------------------------------------------------------------------
Balances at January 2, 2002 $ 30,544 5,203 281,007
=============================================================================================================
On January 26, 1995, the Board of Directors adopted a Shareholder Rights
Agreement (the "Agreement") and declared a dividend of one Common Stock Purchase
Right (a "Right") for each outstanding share of common stock to shareholders of
record on February 10, 1995. Such Rights only become exercisable ten business
days after (i) a public announcement that a person or group, except for certain
exempt persons specified in the Agreement, (an "Acquiring Person") has acquired
beneficial ownership of 15% or more of the Company's common stock; or (ii) a
person or group commences or publicly announces its intention to commence a
tender or exchange offer for an amount of the Company's common stock that would
result in the ownership by such person or group of 15% or more of the common
stock.
Each Right may initially be exercised to acquire a one-half share of the
Company's common stock at an exercise price of $25, subject to adjustment.
Thereafter, upon the occurrence of certain events specified in the Agreement
(for example, if the Company is the surviving corporation of a merger with an
Acquiring Person), the Rights entitle holders other than the Acquiring Person to
acquire upon exercise common stock having a market value of twice the exercise
price of the Rights. Alternatively, upon the occurrence of certain other events
specified in the Agreement (for example, if the Company is acquired in a merger
or other business combination transaction in which the Company is not the
surviving corporation), the Rights would entitle holders other than the
Acquiring Person to acquire upon exercise common stock of the acquiring company
having a market value of twice the exercise price of the Rights.
The Rights may be redeemed by the Company at a redemption price of $.001 per
Right at any time prior to the tenth business day following public announcement
that a 15% position has been acquired and before the final expiration date of
the Rights. After the redemption period has expired, the Company's right of
redemption may be reinstalled under certain circumstances outlined in the
Agreement. The Rights will expire on February 10, 2005.
PAGE 21
RYAN'S FAMILY STEAK HOUSES, INC. 2001 ANNUAL REPORT
The Company's Board of Directors has authorized the repurchase of up to 30
million shares of the Company's common stock through December 2002. At January
2, 2002, approximately 25.3 million shares had been purchased at an aggregate
cost of $244.2 million since the beginning of the program in March 1996. Future
repurchase transactions will be made from time to time on the open market or in
privately negotiated transactions in accordance with applicable securities
regulations, depending on market conditions, share price and other factors.
NOTE 8. TEAM MEMBER RETIREMENT PLANS
The Company maintains a defined contribution retirement plan, which covers all
team members who have at least one year of service and have attained 21 years of
age. Participating team members may contribute from 1% to 15% of their
compensation to the plan with the first 6% of compensation matched by the
Company at a 40% rate. The Company's match for participants with 20 or more
years of service increases to 100%. All plan assets are invested in a nationally
recognized family of mutual funds. Retirement plan expense, including
administrative costs, amounted to $1,475,000 in 2001, $1,320,000 in 2000, and
$1,103,000 in 1999.
In 1999 the Company implemented a nonqualified deferred compensation plan that
provides benefits payable to officers and certain key executives or their
designated beneficiaries at specified future dates or upon the termination of
employment or death. Participants in the plan have the opportunity to (i) defer
up to $150,000 of their compensation in excess of the Social Security wage base
and (ii) receive a matching contribution comparable to the Company's defined
contribution retirement plan without the restrictions and limitations in the
Internal Revenue Code. Participant deferrals and the Company's match are
deposited each month in Company-owned insurance contracts that give each
participant the opportunity to indicate a preference among various investment
options. The return on these underlying investments determines the amount of
earnings credit. The Company has the right to amend or terminate the plan. The
amount of expense related to the deferred compensation plan amounted to $209,000
in 2001, $381,000 in 2000 and $93,000 in 1999. Outstanding balances under the
deferred compensation plan amounted to $2,098,000 at January 2, 2002 and
$1,694,000 at January 3, 2001 and are classified as other long-term liabilities
in the accompanying balance sheets.
NOTE 9. STOCK OPTION PLAN
In 1998, the Company's shareholders approved a stock option plan ("Plan")
pursuant to which the Company's Board of Directors may grant options to officers
and team members. The Plan authorized grants of options to purchase up to
3,000,000 shares of authorized but unissued common stock. Under the terms of the
Plan, which expires in 2007, a committee of non-employee directors has the
authority to determine the eligibility, tax treatment, term, vesting schedule
and exercise price. However, the Plan states that the exercise price of the
option cannot be less than the fair market value, based on the closing market
price, of the Company's common stock on the day of the grant. Historically, the
Company has always granted options at fair market value on the day of grant,
used various vesting schedules, and set expiration dates generally ten years
from the date of grant. At January 2, 2002, there were 408,000 shares available
for grant under the Plan. There were also outstanding options granted under
predecessor stock option plans.
A summary of the status of the Company's current and predecessor stock option
plans as of January 2, 2002, January 3, 2001 and December 29, 1999 and changes
during the years ended on those dates is presented below:
2001 2000 1999
-----------------------------------------------------------------------------------------
Weighted-Average Weighted-Average Weighted-Average
(Shares in thousands) Shares Exercise Price Shares Exercise Price Shares Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of year 3,709 $ 8.67 3,438 $ 8.88 3,198 $ 8.37
Granted 844 17.51 792 7.66 783 10.24
Exercised (1,201) 8.42 (119) 6.16 (307) 6.96
Forfeited (200) 9.11 (402) 9.13 (236) 8.99
------- ------ ------
Outstanding at end of year 3,152 11.12 3,709 8.67 3,438 8.88
===================================================================================================================================
Exercisable at year-end 1,806 2,488 2,089
===================================================================================================================================
The following table summarizes information about stock options outstanding at
January 2, 2002:
(Shares in thousands) OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Weighted-Average
-------------------------------------
Range of Number Outstanding Remaining Number Exercisable Weighted-Average
Exercise Prices at 1/2/02 Contractual Life Exercise Price at 1/2/02 Exercise Price
- -------------------------------------------------------------------------------------------------------------------------
$ 6 to $8 1,289 6.6 years $ 7.46 857 $ 7.39
$ 8 to $10 100 6.6 8.64 100 8.64
$ 10 to $12 927 6.8 10.58 647 10.64
$ 12 to $18 836 9.7 17.66 202 17.30
=========================================================================================================================
$ 6 to $18 3,152 7.5 $ 11.12 1,806 $ 9.73
=========================================================================================================================
PAGE 22
The per share weighted-average fair values of stock options issued during 2001,
2000 and 1999 were $5.82, $2.84, and $3.80,respectively. The fair value of each
option grant was estimated using the Black-Scholes option-pricing model based on
the following weighted-average assumptions:
2001 2000 1999
- ------------------------------------------------------------------
Risk-free interest rate 4.0% 5.8 6.2
Expected life (years) 5.2 5.1 5.1
Expected volatility .29 .29 .28
Expected dividend yield 0% 0 0
==================================================================
The Company applies APB Opinion No. 25 in accounting for the Plan and,
accordingly, no compensation cost has been recognized for stock options in the
consolidated financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS No.
123, the Company's net earnings and earnings per share would have been reduced
to the pro forma amounts indicated in the following table:
(In thousands, except earnings per share) 2001 2000 1999
- -----------------------------------------------------------------------------------------------------
Net earnings
As reported $ 45,046 41,983 41,617
Pro forma 43,255 40,846 40,369
Earnings per share
Basic:
As reported $ 1.47 1.28 1.12
Pro forma 1.41 1.25 1.08
Diluted:
As reported 1.42 1.27 1.10
Pro forma 1.37 1.23 1.07
=====================================================================================================
NOTE 10. EARNINGS PER SHARE
Basic and diluted earnings per share ("EPS") are calculated as follows:
(In thousands, except earnings per share) 2001 2000 1999
- ----------------------------------------------------------------------------------------------------------
Net earnings a $ 45,046 41,983 41,617
- ----------------------------------------------------------------------------------------------------------
Weighted-average common shares b 30,587 32,797 37,253
Stock options 1,092 298 621
- ----------------------------------------------------------------------------------------------------------
Adjusted weighted-average common shares c 31,679 33,095 37,874
- ----------------------------------------------------------------------------------------------------------
Basic EPS a/b $ 1.47 1.28 1.12
Diluted EPS a/c 1.42 1.27 1.10
==========================================================================================================
NOTE 11. QUARTERLY CONSOLIDATED FINANCIAL DATA (UNAUDITED)
Quarterly consolidated financial results for 2001 and 2000 are summarized as
follows:
Quarter
-------------------------------------------------------------
(In thousands, except earnings per share) First Second Third Fourth Total Year
- -------------------------------------------------------------------------------------------------------------------------------
2001(a)
Restaurant sales $ 183,896 192,606 188,839 179,822 745,163
Operating profit (b) 27,959 31,208 30,512 25,870 115,549
Net earnings 10,781 12,834 12,005 9,426 45,046
Earnings per share:
Basic $ 0.35 0.42 0.39 0.31 1.47
Diluted 0.34 0.41 0.38 0.30 1.42
===============================================================================================================================
PAGE 23
RYAN'S FAMILY STEAK HOUSES, INC. 2001 ANNUAL REPORT
Quarter
-------------------------------------------------------------
(In thousands, except earnings per share) First Second Third Fourth Total Year
- -------------------------------------------------------------------------------------------------------------------------------
2000(a)
Restaurant sales $ 168,272 180,960 177,797 177,595 704,624
Operating profit (b) 26,198 30,772 27,116 26,912 110,998
Net earnings 10,098 11,937 9,877 10,071 41,983
Earnings per share:
Basic $ 0.29 0.37 0.31 0.32 1.28
Diluted 0.29 0.36 0.31 0.32 1.27
===============================================================================================================================
(a) Fiscal 2001 consisted of 52 weeks, while fiscal 2000 was a 53-week
period.
(b) Restaurant sales less operating expenses. Operating expenses are
comprised of costs and expenses associated directly with or allocated
to products sold at the Company's restaurants.
NOTE 12. DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's significant financial instruments are cash and cash equivalents,
receivables, notes payable, accounts payable, accrued liabilities and long-term
debt. Except for long-term debt, the fair values of these financial instruments
approximate their carrying values due to their short maturities. The fair value
of the long-term debt is discussed in Note 3.
NOTE 13. TAX CONTINGENCY
In September 2001 the Company received a proposed assessment from the South
Carolina Department of Revenue ("DOR") in connection with the DOR's audits of
the Company's state tax returns for the years 1994 through 1999. The Company
disagrees strongly with the DOR's findings, intends to vigorously contest the
assessment and has in fact filed refund claims for substantially all of the
years under audit. The DOR has not yet issued a final determination. Management
has engaged legal counsel to represent the Company before the DOR and beyond, if
necessary. At this time, it is not possible to estimate the ultimate financial
outcome to the Company. In the event of an unfavorable outcome, payment of the
assessment, including any interest and penalties, by the Company to the DOR
would not affect the Company's ability to meet its obligations or conduct its
business.
Independent Auditor's Report
The Board of Directors and Shareholders
Ryan's Family Steak Houses, Inc.:
We have audited the accompanying consolidated balance sheets of Ryan's Family
Steak Houses, Inc. and subsidiaries as of January 2, 2002 and January 3, 2001
and the related consolidated statements of earnings and cash flows for each of
the years in the three-year period ended January 2, 2002. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ryan's Family Steak
Houses, Inc. and subsidiaries at January 2, 2002 and January 3, 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended January 2, 2002, in conformity with accounting
principles generally accepted in the United States of America.
Greenville, South Carolina KPMG LLP
January 30, 2002
PAGE 24
DEPARTMENTS
[ PHOTO ]
[ PHOTO ]
[ PHOTO ]
[ PHOTO ]
[ PHOTO ]
(top to bottom) Administration and
Finance, Real Estate and Construction,
Human Resources, Operations, and
Purchasing and Marketing
DIRECTORS
Charles D. Way
Chairman, President and
Chief Executive Officer
G. Edwin McCranie
Executive Vice President
James D. Cockman
Investor
Harold K. Roberts, Jr.
President and
Chief Executive Officer
Statewide Title, Inc.
Barry L. Edwards
Executive Vice President
and Chief Financial Officer
F.Y.I., Incorporated
Brian S. MacKenzie
Chief Operating Officer
Samling Strategic Corporation
SDN BHD
Chief Executive Officer
Paper Space, Inc.
OFFICERS
Charles D. Way
Chairman, President and
Chief Executive Officer
G. Edwin McCranie
Executive Vice President
Fred T. Grant, Jr.
Senior Vice President-Finance
and Chief Financial Officer
Alan Shaw
Senior Vice President-
Operations
Janet J. Gleitz
Corporate Secretary
Morgan A. Graham
Vice President-Construction
James R. Hart
Vice President-Human
Resources
Ilene T. Turbow
Vice President-Marketing
William R. Dalton
Regional Vice President
Richard B. Erwin
Regional Vice President
Michael Rick Kirk
Regional Vice President
William J. O'Brien
Regional Vice President
[ PHOTO ]
CORPORATE INFORMATION
Corporate Office
Ryan's Family Steak Houses, Inc.
405 Lancaster Avenue (29650)
Post Office Box 100
Greer, South Carolina 29652
(864) 879-1000
General Counsel
Wyche, Burgess, Freeman &Parham, P.A.
Greenville, South Carolina
Transfer Agent
EquiServe, Inc.
P.O. Box 43012
Providence, Rhode Island 02940-3012
(800) 633-4236
www.equiserve.com
Independent Auditors
KPMG LLP
Greenville, South Carolina
Form 10-K
A copy of the Company's annual report on Form 10-K for fiscal 2001, as filed
with the Securities and Exchange Commission, may be obtained without charge by
writing to the Corporate Secretary at the Company's corporate office.
Annual Meeting
The annual meeting will be held at the Greenville/Spartanburg Airport Marriott,
Greenville, South Carolina, on Wednesday, May 1, 2002 at 11:00 a.m. All
shareholders are cordially invited to attend.
Common Stock Data
The Company's common stock trades on The Nasdaq Stock Market(R) under the symbol
RYAN. The Company has never paid cash dividends on its common stock and does not
expect to pay such dividends in the foreseeable future.
Quarterly Financial Information
and Other News Releases
In order to provide Ryan's shareholders and prospective investors with timely
and accurate information, quarterly financial information and other news
releases can be obtained on the internet at www.ryansinc.com.
Market Price of Common Stock
2001
- ---------------------------------------
Quarter High Low
- ---------------------------------------
First $11.06 8.81
Second 13.70 10.44
Third 17.90 12.35
Fourth 23.22 16.49
2000
- ---------------------------------------
Quarter High Low
- ---------------------------------------
First $ 9.94 8.19
Second 10.38 8.19
Third 10.06 7.28
Fourth 10.00 7.38
The closing price quotation of the Company's common stock on March 6, 2002 was
$23.82 per share.
OUR MISSION STATEMENT
To be an innovative, profitable, growth company, committed to customer
satisfaction by always providing high quality food at affordable prices with
friendly service in clean and pleasant surroundings. We Strive >To put people
first -- customers and team members. >To attract and maintain a strong team of
individuals recognized as standouts in each area of focus. >To promote safety,
responsibility and a high level of ethics in our workplace.> To be
environmentally aware and work to preserve our natural resources. >To utilize
materials and services that provide the best cost/value ratio without
sacrificing quality. >To enhance long-term shareholder wealth.
[ RYAN'S(R) LOGO ]
405 Lancaster Avenue (29650), Post Office Box 100, Greer, South Carolina 29652
(864) 879-1000